§77.6 Responsibility for Acts of Agents

The Basic Facts: Plaintiff's modular home was improperly constructed. She sued the contractor and the manufacturer of the home. She sought to hold the manufacturer vicariously liability for the acts of the contractor.

The Bottom Line :

"The trial court also determined that All American was liable to Ms. Tucker under the doctrine of respondeat superior. The court determined that Sierra Builders was actually acting as All American's agent and, therefore, that All American was ultimately responsible for Sierra Builders' shoddy work. The evidence does not support the trial court's conclusion that Sierra Builders was All American's agent. In fact, the only reasonable conclusion that can be drawn from the evidence is that Sierra Builders was acting only for itself when it contracted to build Ms. Tucker's house." 180 S.W.3d at 120.

"The doctrine of respondeat superior permits a principal to be held liable for the negligent acts of its agents. Johnson v. LeBonheur Children's Med. Ctr., [74 S.W.3d 338, 346 (Tenn. 2002)]; Washington v. 822 Corp., [43 S.W.3d 491, 494 (Tenn. Ct. App. 2000)]. To hold a principal liable for the acts of another, a plaintiff must prove (1) that the person causing the injury was the principal's agent and (2) that the person causing the injury was acting on the principal's business and acting within the scope of his or her employment when the injury occurred. Russell v. City of Memphis, [106 S.W.3d 655, 657 (Tenn. Ct. App. 2002)]; Tennessee Farmers Mut. Ins. Co. v. American Mut. Liab. Ins. Co., [840 S.W.2d 933, 937 (Tenn. Ct. App. 1992)]." Id.

"Determining whether a principal-agent relationship exists requires a careful analysis of the facts.See Bd. of Directors of Harriman Sch. Dist. v. Southwestern Petroleum Corp., [757 S.W.2d 669, 673 (Tenn. Ct. App. 1988)]; Knight v. Hawkins, [173 S.W.2d 163, 166-67 (Tenn. Ct. App. 1943)]. The Tennessee Supreme Court has held that the following factors should be considered when determining whether a person is an agent or an independent contractor: (1) the right to control the conduct of the work, (2) the right of termination, (3) the method of payment, (4) the freedom to select and hire helpers, (5) the furnishing of tools and equipment, (6) the self-scheduling of work hours, and (7) the freedom to render services to other entities. Beare Co. v. State, [814 S.W.2d 715, 718 (Tenn. 1991)]." Id.

"The most indicative factor is the right to control the conduct of the work. Youngblood v. Wall, [815 S.W.2d 512, 517 (Tenn. Ct. App. 1991)]. Control is a key element in the creation of a principal-agent relationship. [Restatement (Second) of Agency § 220(1) (1958)]; [Warren A. Seavey, Handbook of the Law of Agency § 84C (1964)]. However, in Tennessee, it is not the right to control the result that is determinative of the existence of an agency relationship; it is the right to control the actual conduct of the work. McDonald v. Dunn Constr. Co., [185 S.W.2d 517, 520 (Tenn. 1945)]; Armoneit v. Elliott Crane Serv., Inc., [65 S.W.3d 623, 629 (Tenn. Ct. App. 2001)]." Id.

"The trial court misapplied the 'right to control' principle, as well as most of the other Beare Co. v. State factors in its analysis of the evidence in this case. It supported its conclusion that All American had 'substantial control' over the work of Sierra Builders by pointing to several requirements in the 'Builder/Manufacturer Sales Agreement,' including Sierra Builder's obligations (1) to provide a bond, (2) to carry insurance, and (3) to comply with the terms of the sales agreement. It also relied heavily on its understanding that All American furnished Sierra Builders all of its equipment and materials and that Sierra Builders could 'only be an authorized builder for All American Homes,' and (3) that All American retained the right to terminate its agreement with Sierra Builders." Id. at 120-21.

"The evidence simply does not support the trial court's findings regarding the furnishing of tools and equipment or the exclusivity of All American's contract with Sierra Builders. All American presented uncontradicted evidence that its agreement with Sierra Builders was not exclusive. All American also presented uncontradicted evidence that it used its own equipment and crew only to secure the modules on the foundation and to place the roof on the building. While there is also evidence that All American may have sold some materials for the construction of the porch and garage, there is no evidence that All American was involved with the construction of these structures." Id. at 121.

"None of the facts relied on by the trial court amount to the sort of control over the details or the manner in which Sierra Builders performed its work needed to establish an agency relationship between All American and Sierra Builders. This record contains absolutely no evidence (1) that All American retained the right to control the means or methods of Sierra Builders' work, (2) that Sierra Builders was not free to render services to others, (3) that Sierra Builders was not free to select its own employees and helpers, (4) that Sierra Builders did not set its own work schedule and work hours, or (5) that Sierra Builders did not provide its own tools and equipment for the portions of the work for which it was responsible. It is also important to note that All American did not pay Sierra Builders anything for its work. To the contrary, Sierra Builders was required to pay All American for the house modules and the materials it purchased from All American." Id.

"After reviewing the evidence in this record in its entirety, we have concluded that Ms. Tucker has failed to prove that Sierra Builders was acting as All American's agent with regard to the construction of her house. In fact, the evidence rather convincingly establishes that Sierra Builders independently contracted with Ms. Tucker and that All American was essentially a material supplier, just like the manufacturer of the central heating and air conditioning unit that was installed in Ms. Tucker's house." Id.

"By the time this case was tried, it was evident that the real culprits, Sierra Builders and Mr. Medlin, were judgment-proof. As regrettable as this may be, it does not provide the trial court with a defensible basis for requiring All American to bear the costs of correcting Sierra Builders' shoddy work. Under the facts of this case, the neutral legal principles of respondeat superior simply will not permit holding All American vicariously liable for Sierra Builders' performance of its contract with Ms. Tucker." Id.

(Next six paragraphs from Concurring Opinion by Judge Franks)

"The Trial Court also based its ruling on a finding of vicarious liability/agency, which the majority concludes was incorrect. All American asserted that there was no agency relationship because the contract which it had with Sierra stated explicitly that neither party was an agent for the other. All American asserted that Sierra was an independent contractor who merely bought products from All American. All American then relied upon several cases which discuss the distinctions between an employer/employee relationship versus an independent contractor, but those are not really applicable here, since All American was clearly not Medlin's employer in the typical sense." Id. at 124.

"What must be considered, however, is whether Sierra was an agent or apparent agent of All American, based on the facts proven. As this Court has previously recognized:

Apparent agency is essentially agency by estoppel; its creation and existence depend upon such conduct by the apparent principal as will preclude him from denying another's agency. Generally, to prove apparent agency one must establish (1) the principal actually or negligently acquiesced in another party's exercise of authority; (2) the third person had knowledge of the facts and a good faith belief that the apparent agent possessed such authority; and (3) the third person relied on this apparent authority to his or her detriment.

"In England, the court discussed agency and violations of the Consumer Protection Act, and the facts are similar to the case at bar. The England plaintiffs were cattle farmers who were members of the Tennessee Artificial Breeding Association, and who utilized the services of a Mr. Liggett, who was employed by the Giles County Artificial Breeding Association (and then later worked as an independent contractor) as a technician who artificially impregnated cattle with semen purchased from the TABA. Mr. Liggett was TABA's customer, and he in turn used the semen he purchased from TABA to artificially inseminate cows for cattle farmers, and he earned a profit on that semen as well as a fee for his services." Id. at 125.

"Mr. Liggett was provided with 'breeding receipts' for his use which were printed and furnished by TABA, and which contained the name 'Select Sires, Inc.', which was a TABA trade name, and which also stated that the technician was authorized to issue the receipt as evidence of services rendered and to identify the semen used. Mr. Liggett was caught defrauding his customers, the cattle farmers, by accepting payment for higher-priced semen while inseminating their cows with a lower-priced semen." Id.

"The cattle farmers sued Liggett and TABA, and asserted, among other claims, that TABA should be held liable for Liggett's conduct under the Consumer Protection Act, under agency principles. This Court found that agency principles did apply to the Consumer Protection Act, and that TABA negligently acquiesced in Liggett's exercise of authority for TABA by allowing its name to be printed on the breeding receipts, by providing Liggett with promotional materials which allowed the farmers to choose the semen they wanted, and because the customers testified that they believed Liggett and TABA were 'one and the same.' This Court found that the customers relied upon Liggett's apparent authority to their detriment, and reversed the Trial Court's dismissal of their CPA claims." Id.

"Similarly here, All American published brochures with their name and detailed information about their homes, and furnished those brochures to Sierra for use in promoting their homes. The sign at Sierra's office boldly displayed All American Homes' name and subordinated Sierra's, and the All American salesman was found to be at that office every time plaintiff visited. More importantly, as mentioned in detail above, the All American salesman encouraged plaintiff to visit the factory, to tour completed homes there, and represented to plaintiff that her home would be similarly finished out. Plaintiff was allowed to select items while at the factory, and to incorporate that into the home she contracted for - she even completed the contract with the All American salesman present. As plaintiff testified, she had no reason to think that All American and Sierra were two separate entities, and she did in fact believe that All American would stand behind her project until it was completed to her satisfaction, as that is what she was told by Mr. Groshan. Thus, it would appear that the Trial Court properly relied upon agency principles in holding All American liable for plaintiff's CPA claims." Id. at 125-26.

Other Sources of Note: White v. Revco Discount Drug Centers, Inc. , 33 S.W.3d 713, 723 (Tenn. 2000) ("principal may be liable for an agent's tortious act, even if the act occurs outside of the scope of the agency, if the act was commanded or directed by the principle"); McCall v. Owens, 820 S.W.2d 748 (Tenn. Ct. App. 1991) (secured party is liable for the wrongful acts of a repossessor even if the repossessor is an independent contractor).

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